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One of the great IVA myths is that the IP fees are paid completely by the banks and the indebted individual should therefore not worry about them. It is true that the IP fees are written into the arrangement but this means that part of the money used to pay back monthly to your creditors is allocated towards the IP professional fees. These facts have a number of important effects:
1. The size of the IP fees may effect whether your IVA proposal is accepted at all. Most creditors require a return on the original debt owed them of at least 25p in the pound. Very large IP fess will affect the return the bank will get and may even put you below the 25p minimum threshold.
2. If your IVA fails in the first year (or in come cases two years) most of the original debt has not been paid. In some cases you owe even more money because you still haven’t paid off the professional fees. However, in such cases of IVA failure it doesn’t matter too much as you will almost definitely be going bankrupt anyway. This leads many people to wonder why they didn’t just go bankrupt in the first place and avoid all the hassle. In any case, just make sure the IP pays for your bankruptcy (they are obligated by law and have already collected fees from you for this eventuality).
3. If you are fortunate enough to come into a windfall that exceeds your debts, you will be liable for all your debts plus interest and the IP professional fees. Further disproving the myth that those “nice folks” at the bank like to pick up the tab for the IP fees!
IP fees could therefore be a big issue for you, if you expect to receive a windfall during the lifetime of your IVA or the fees amount to 20% – 30 % of the amount you will pay back. In such circumstances you will want to put some effort into reducing the fees.
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